Muskegon Community College

Transcription

1 REPORT ON FINANCIAL STATEMENTS Year ended June 30, 2014

2 TABLE OF CONTENTS Independent Auditors Report... 1 Management s Discussion and Analysis... 4 Basic Financial Statements Government-wide Financial Statements Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Component Unit Statement of Financial Position Statement of Activities Notes to Financial Statements Supplemental Information Fund Financial Statements Consolidating Balance Sheet Consolidating Statement of Revenues, Expenses, Transfers and Changes in Net Position... 33

3 BRICKLEY DELONG CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS REPORT November 10, 2014 Board of Trustees Muskegon, Michigan Report on the Financial Statements We have audited the accompanying financial statements of (the College) and its discretely presented component unit as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the College s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America. This includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions Front Ave., NW Suite Morris Ave., Suite 500, P.O. Box S. State St. Grand Rapids, MI Muskegon, MI Hart, MI PHONE (616) PHONE (231) PHONE (231) FAX (616) FAX (231) FAX (231)

4 BRICKLEY DELONG Board of Trustees November 10, 2014 Page 2 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of and its discretely presented component unit as of June 30, 2014, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 4 through 14 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise 's basic financial statements. The consolidating fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The consolidating fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the consolidating fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. 2

5 BRICKLEY DELONG Board of Trustees November 10, 2014 Page 3 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 10, 2014, on our consideration of s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering s internal control over financial reporting and compliance. Muskegon, Michigan 3

6 Management s Discussion and Analysis The discussion and analysis of s financial statements provides an overview of the College s financial activities for the year ended June 30, Management has prepared the financial statements and the related footnote disclosures along with the discussion and analysis. Responsibility for the completeness and fairness of this information rests with the College s management. The financial statements have been prepared in accordance with generally accepted accounting principles outlined in the Manual for Uniform Financial Reporting for Michigan Public Community Colleges, 2001 issued by the State of Michigan. This annual financial report includes the report of independent auditors, this management s discussion and analysis, the basic financial statements in the above-referred format and notes to the financial statements along with supplemental information. The financial statements include not only itself (known as the primary government), but also a discretely presented component unit. Component units are separate legal entities for which the College has some level of accountability. The College has one component unit, the Foundation for (Foundation). The Foundation s sole purpose is to support the mission of the College through fund development. As part of this purpose, it is responsible for managing the fundraising efforts of the College. Separate financial statements are also issued for the Foundation and can be obtained from the College s Finance Department. Financial Highlights In the fiscal year ended June 30, 2014, the College s revenues and other support exceeded expenses by $227,939, creating an increase in net position. The Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Net Position The Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Net Position report information on the College as a whole. These two statements report the College s net position and changes within net position. When revenues and other support exceed expenses, the result is an increase in net position. When the reverse occurs, the result is a decrease in net position. 4

7 Management s Discussion and Analysis These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private-sector institutions. All of the current year s revenues and expenses are taken into account, regardless of when cash is received or paid and are separated into categories of operating and non-operating. Following is a comparative analysis of the major components of the net position of the College as of June 30, 2014 and 2013: (in thousands) Net Position As of June 30 Percent Change Change Assets Current assets $ 23,244 $ 21,960 $ 1, % Non-current assets Restricted assets 9,662-9,662 N/A Capital assets, net 22,585 22,997 (412) -1.79% Total assets 55,491 44,957 10, % Liabilities Current liabilities 9,735 8, % Non-current liabilities Bonds 16,093 6,623 9, % Compensated absences 1,976 2,006 (30) -1.50% Total liabilities 27,804 17,498 10, % Net Position Net investment in capital asset 15,535 15,854 (319) -2.01% Restricted 2,995 3,011 (16) -0.53% Unrestricted 9,157 8, % Total net position $ 27,687 $ 27,459 $ % 5

8 Management s Discussion and Analysis For current assets, accounts receivable increased by $444,000 due to outstanding unpaid balances from the current fiscal year at a higher tuition rate than the previous year. Prepaid expenses increased by $301,000 due to the inclusion of some large annual software maintenance payments that relate to fiscal year that were paid before year end this year. Offsetting these increases was a decrease in state appropriation receivable by $114,000 which was primarily due to the inclusion of a $236,000 Michigan Public Schools Employees Retirement System (MPSERS) stabilization rate payment in last fiscal year while this year s receivable was only $111,000. Property taxes receivable also decreased by $78,000 due to some payment in lieu of tax receivables that were included in the prior year balance that have been received. Restricted assets increased by $9,662,000 due to the cash and investment increase from the unspent bond proceeds and premium received from the bonds issued by the College in December Capital assets decreased by $412,000 net of accumulated depreciation. Total additions of $721,685 included architectural work on the new science center, some other building improvements, various equipment purchases and technology upgrades. These additions were offset by the reduction in construction in progress and the current year impact of depreciation. Current liabilities increased by $865,000. Of this increase $299,000 was in accounts payable and included several large payables for architectural and construction manager services related to the science center project and repair and maintenance services. In addition, unearned revenue increased by $395,000 resulting primarily from the increase in tuition and fee rates for the Fall 2014 semester for those students that had registered prior to year end. Also accrued interest payable increased by $205,000 as a result of the new bond issue. Bonds increased due to addition of the $9.6 million in bonds issued this fiscal year. This was offset by the scheduled bonded debt payments of the two previous bond issues. Compensated absences decreased by $31,000 primarily due to the retirement of several long-term employees. Although unrestricted net position is not subject to externally imposed restrictions, a majority of the College s unrestricted net position is designated for purposes which fulfill the College s mission, as well as, designations for capital projects (plant fund - $2,599,970); fund balance reserve (general fund - $6,217,582); and scholarships and grants (expendable restricted fund - $42,850). 6

9 Management s Discussion and Analysis Summary Operating Results for the Year (in thousands) Percent Change Change Operating revenues Tuition and fees $ 10,614 $ 9,787 $ % Grants and contracts 9,469 9,965 (496) -4.98% Auxiliary services (57) % Other (158) % Total operating revenues 20,858 20, % Total operating expenses 38,552 38, % Operating loss (17,694) (17,572) (122) -0.69% Non-operating revenues (expenses) State appropriations 9,328 8, % Property taxes 8,983 9,097 (114) -1.25% Gifts (62) % Investment income (7) % Interest on capital asset - related debt (490) (570) % Gain (loss) on sale of capital asset - (11) % Total non-operating revenues (expenses) 17,921 17, % Change in net position 227 (56) % Net position - beginning of year 27,460 27,516 (56) -0.20% Net position - end of year $ 27,687 $ 27,460 $ % 7

10 Management s Discussion and Analysis Operating Revenues Operating revenues include all transactions that result in the sales and/or receipts from goods and services such as tuition and fees and bookstore operations. In addition, certain federal, state, and private grants are considered operating if they are not for capital purposes and are considered a contract for services. The following is a graphic illustration of operating revenues by source: Federal Grants & Contracts 41% Other 2% State & Local Grants & Contracts 4% Auxiliary Activities 2% Tuition & Fees 51% Most of the College s operating revenue comes from federal and state grants and tuition and fees. Tuition and fees increased in total by $827,000. The College increased tuition rates per contact hour by 4.7%. The College also increased the technology fee from $10 to $17 per contact hour. The total contact hours for fiscal year decreased by approximately 7,300 or 6% from the prior year. The amount of scholarship allowances decreased by $520,000, which increases the amount of tuition and fees reported. Federal and state grants decreased by $496,000. The primary reason for this decrease was due to the stricter income eligibility requirements for receiving a Pell grant which reduced the number of students that qualified for this type of financial aid. 8

11 Management s Discussion and Analysis Operating Expenses Operating expenses include all the costs necessary to perform and conduct the programs and primary purposes of the College. Operating expenses for the fiscal year ended June 30, 2014 and 2013 consist of the following: (in thousands) Change Change Instruction $ 16,226 $ 16,162 $ % Public services (68) % Instructional support 3,296 3,418 (122) -3.57% Student services 9,820 10,086 (266) -2.64% Institutional administration 3,681 3, % Operation and maintenance of plant 3,156 3,221 (65) -2.02% Depreciation and amortization 1,134 1, % Other expenses % Total $ 38,552 $ 38,314 $ % The following is a graphic illustration of operating expenses by source: Institutional Admin 10% Plant Operations 8% Other 6% Instruction 42% Student Services 25% Instructional Support 9% 9

12 Management s Discussion and Analysis Operating expenses increased by $238,000. Other expenses increased by $556,000 which included $251,000 in bond issuance and millage campaign costs and some significant noncapital repair and maintenance costs including a mold abatement project totaling $119,000. Additionally there were increases in Instruction of $64,000, Institutional administration of $50,000 and Depreciation and amortization of $89,000. The increase in Instruction expenditures was primarily due to a new federal grant that supported expenditures related to our applied technology programs. The increase in Institutional administration was due to a reorganization of staff that moved employees from Institutional support to Institutional administration. Depreciation increased due to the new fixed asset additions that have occurred over the last few years. Offsetting this increase was a decrease in Student services expenditures by $266,000 which is partially due the stricter income eligibility requirements for receiving a Pell grant which resulted in fewer awards being offered. Instructional support expenditures also decreased by $122,000 primarily due to an employee retirement that was not replaced and a reorganization of staff mentioned above. Public services expenditures also decreased by $68,000 due to an employee retirement that was not replaced. Operation and maintenance of plant expenditures also decreased by $65,000 due to lower repair and supply costs than in the prior year and lower fringe benefit costs. Non-operating Revenues (Expenses) Non-operating revenues (expenses) include all revenue sources or expenses that are primarily nonexchange in nature. They would consist primarily of state appropriations, property tax revenue, investment income (including realized and unrealized gains and losses), grants and contracts (that do not require any services to be performed), interest expense on bond issues and gains or losses on sale of capital assets. Non-operating revenue (expense) changes were the result of the following factors: Increase in state appropriations of $497,000 or 5.64% was due to an increase in the state aid appropriation as well as the inclusion of the additional MPSERS stabilization rate payment of which was $374,000 higher than the previous year. Decrease in taxable value, for property within the taxing district, resulting in decreased property tax revenues of $114,000, or a 1.3% decrease. Investment income decreased by $7,000 or 12.30% primarily due to the continuing decline in investment rates. Interest on capital asset - related debt decreased 14.13% or $80,000. Gain/(loss) on sale of capital asset decreased $11,000 as we had no fixed asset disposals during the fiscal year. 10

13 Management s Discussion and Analysis The following is a graphic illustration of non-operating revenues by source: Other 1% State Appropriations 50% Property Taxes 49% Note: Graph does not show non-operating expenses. Other Revenue Other revenue consists of items that are typically nonrecurring, extraordinary or unusual to the College. Examples would be state capital appropriations, additions to permanent endowments and transfers from related entities. The College had no other revenue during the year ended June 30, Statement of Cash Flows The primary purpose of this statement is to provide relevant information about the cash receipts and cash payments of an entity during a period. The Statement of Cash Flows also may help users assess: An entity s ability to generate future net cash flows Its ability to meet obligations as they come due Its needs for external financing Overall, the College s year-end cash position increased by $1,409,

14 Management s Discussion and Analysis Cash Flows for the Year Ended June 30 (in thousands) Percent Change Change Cash provided by (used for) Operating activities $ (16,684) $ (16,892) $ % Noncapital financing activities 18,550 17, % Capital and related financing activities 8,474 (1,804) 10, % Investing activities (8,930) 2,404 (11,334) % Net change in cash and cash equivalents 1,410 1, % Cash and cash equivalents - beginning of year 2,599 1,238 1, % Cash and cash equivalents - end of year $ 4,009 $ 2,599 $ 1, % Capital Assets At June 30, 2014, the College had $39.0 million invested in capital assets, with accumulated depreciation of $16.4 million. Depreciation charges totaled $1,045,000 for the current fiscal year. Details of these assets, net of depreciation at June 30, are shown in the following table. (in thousands) Fixed Assets for the Year Ended June Change Land $ 231 $ 231 $ - Construction in progress Land improvements (40) Buildings and improvements 19,059 19,714 (655) Equipment 2,543 2, Total $ 22,585 $ 22,997 $ (412) Construction in progress increased as a result of the inclusion of the costs associated with the construction of the new science center. The decrease in land improvements and buildings and improvements is primarily due to the current year depreciation charges. The increase in equipment is primarily due to the capitalization of the some large computer hardware purchases, applied technology equipment and maintenance equipment net of depreciation. See Note C, in the notes to the financial statements, for more detail. 12

15 Management s Discussion and Analysis In the next fiscal year, the College has budgeted for equipment and building and improvements of approximately $940,000; primarily for instructional equipment and minor facility renovations. It is anticipated that all capital expenditures related to the projects associated with the voter approved debt millage will be in construction in progress at the end of next fiscal year. Only those items with a cost of more than $5,000 will be capitalized. Debt The College s long-term debt consists of $16,623,092 in General Obligation Limited Tax Bonds, issued in 2003, 2005 and This compares to $7,142,849 as of June 30, The College s bond debt rating is AA- (Standard & Poor s) and Aa3 (Moody s). Standard & Poor s bond rating was recently reaffirmed through their periodic reevaluation cycle. The 2003 bonds were issued for the purpose of constructing the Career Technical Center (CTC) and a new library addition to the College s main campus. The CTC is operated by the Muskegon Area Intermediate School District (MAISD), and has been sold to them on a land contract. The MAISD satisfied its obligation to the College by making is final balloon payment in April 2013, the proceeds of which were used to pay off the remaining debt service requirements on that portion of bonds used to construct that facility. The only remaining portion of the 2003 bonds relates to the College s liability on the library addition. The 2005 bonds were issued for the purpose of completing the new library addition and renovating/remodeling vacated space. The 2013 bonds were issued for the purpose of construction and renovation of facilities for the science, arts and health education programs, in addition to the development of a downtown Muskegon facility. The funding source to pay the debt service payments on these bonds will be the property tax revenues from the voter approved debt millage with the first levy to be December 1, More detailed information about the College s long-term liabilities is presented in Note E of the notes to financial statements. A 2014 bond issue for $14,085,000 occurred in October 2014 which represents the remainder of the voter approved bond proposal. Economic Factors That Will Affect the Future The economic position of the College is closely tied to that of the State. The current state funding for the College is projected to increase by 2.9% for fiscal year Property taxes are also projected to increase by.61% after four consecutive years of decline. 13

16 Management s Discussion and Analysis The national and state economy still seems uncertain even though, in certain areas, there shows signs of turnaround. The layoff of employees seems to have slowed and community colleges continued to see a steady enrollment of students in fiscal year 2014 because of their affordability, compared to four year institutions, and young adults realizing the importance of having some type of college education to get a job. The reduction in state and federal funding has contributed to the slight decline in enrollment of approximately 6.0% in the Fall 2014 semester, which is better than what most other community colleges in the state are experiencing. As a result, we are seeing an increase in the number of part-time students as they seek part-time employment to fill the gap left by the funding reduction. In the November 2013 election, the College received voter approval for a $24 million bonding proposal to be used for the construction and renovation of facilities for the science, arts and health education programs as well as upgrades to existing facilities infrastructure. Final approval on the budget and design of the $9.6 million science center addition and renovation was received as required by the State of Michigan to receive the $4.6 million capital outlay appropriation included in the state budget. This appropriation requires a 50% local match. The College had a groundbreaking ceremony on September 3, 2014 for the new science center addition. Construction began on October 19, 2014 with an anticipated completion by the Fall 2015 semester. Once the new addition is completed, renovations to the existing science program facilities will begin with an estimated completion by the summer of A $6.2 million addition and renovation to the health education facility is one of the other projects included in the voter approved bond proposal. A consultant has been hired to perform a demographical survey to assess community needs with regard to this facility. Feedback from this survey will be reviewed and decisions will be made on how to incorporate this information into the architectural design for this facility. The anticipated completion of this project is by the end of fall The Board of Trustees has decided to relocate the applied technology, entrepreneurism and experiential learning programs to a downtown Muskegon facility estimated to cost $7.2 million for the purchase and renovation of the facility. In September 2014, the Board signed a purchase agreement for the former Muskegon Chronicle building from The Herald Publishing Co. LLC. The purchase is subject to the College s satisfaction of building and environmental inspections. Closing on the property is anticipated to be in November 2014 followed by the issuance of Requests for Proposals for architectural services in January Renovations are projected to begin in the spring of 2015 with completion for classes to begin in January A $6.1 million renovation project of the current applied technology building to be the future site of the arts programs is also planned. An oversight committee has been created to develop renovation recommendations. It is anticipated that renovations will begin in the winter of 2016 with completion by the end of fall It is the belief that by expanding and enhancing our current facilities that it will help to grow our enrollment by attracting more students to the College and simultaneously provide some much needed upgrades to existing facilities. Overall, the College s current financial condition, and future growth plans, indicates that the College is positioned to not only maintain but to grow its present level of services. 14

17 STATEMENT OF NET POSITION June 30, 2014 ASSETS Current assets Cash and cash equivalents $ 3,545,422 Investments 11,672,568 Property taxes receivable 105,692 State appropriation receivable 1,710,299 Accounts receivable 5,521,941 Prepaid expenses and other assets 688,233 Total current assets 23,244,155 Noncurrent assets Restricted cash and cash equivalents 463,428 Restricted investments 9,197,992 Property and equipment, net 22,585,143 Total noncurrent assets 32,246,563 Total assets 55,490,718 LIABILITIES Current liabilities Accounts payable 701,235 Accrued interest payable 252,029 Accrued payroll and other compensation 2,734,948 Deposits 171,082 Unearned revenues - tuition 4,452,329 Bonds, due within one year 530,000 Compensated absences, due within one year 892,757 Total current liabilities 9,734,380 Noncurrent liabilities Bonds, less amounts due within one year 16,093,092 Compensated absences, less amounts due within one year 1,975,889 Total noncurrent liabilities 18,068,981 Total liabilities 27,803,361 NET POSITION Net investment in capital assets 15,535,326 Restricted Expendable Scholarships 154,025 Instructional department uses 91,874 Loans 4,255 Career Tech Center 1,112,395 Library 641,399 Science Center 991,145 Unrestricted 9,156,938 Total net position $ 27,687,357 The accompanying notes are an integral part of this statement. 15

18 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Year ended June 30, 2014 REVENUES Operating revenues Tuition and fees (net of scholarship allowances of $4,277,617) $ 10,614,460 Federal grants and contracts 8,615,858 State and local grants and contracts 816,352 Nongovernmental grants 37,637 Auxiliary activities 427,858 Miscellaneous 346,854 Total operating revenue 20,859,019 EXPENSES Operating expenses Instruction 16,226,312 Public services 570,054 Instructional support 3,296,445 Student services 9,820,819 Institutional administration 3,680,630 Operation and maintenance of plant 3,155,808 Depreciation and amortization 1,133,839 Other expenses 668,501 Total operating expenses 38,552,408 Operating loss (17,693,389) NONOPERATING REVENUES (EXPENSES) State appropriations 9,328,140 Property tax levy 8,983,104 Gifts 46,934 Investment income 52,903 Interest on capital asset - related debt (489,753) Total nonoperating revenues (expenses) 17,921,328 Change in net position 227,939 Net position at July 1, ,459,418 Net position at June 30, 2014 $ 27,687,357 The accompanying notes are an integral part of this statement. 16

19 STATEMENT OF CASH FLOWS Year ended June 30, 2014 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and fees $ 10,568,745 Grants and contracts 9,469,847 Payments to suppliers (13,026,205) Payments for employees (24,471,684) Auxiliary enterprise charges 427,858 Other 346,854 Net cash used for operating activities (16,684,585) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Local property taxes 9,060,716 Gifts and contributions for other than capital purposes 46,934 State appropriations 9,442,171 Net cash provided by noncapital financing activities 18,549,821 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from issuance of bonds 9,995,767 Purchase of capital assets (721,685) Principal paid on capital debt (520,000) Interest paid on capital debt (279,898) Net cash provided by capital and related financing activities 8,474,184 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (8,982,700) Interest on investments 52,903 Net cash used for investing activities (8,929,797) Net change in cash and cash equivalents 1,409,623 Cash and cash equivalents at July 1, ,599,227 Cash and cash equivalents at June 30, 2014 $ 4,008,850 Reconciliation of cash and cash equivalents to Statement of Net Position Cash and cash equivalents $ 3,545,422 Restricted cash and cash equivalents $ 463,428 4,008,850 Reconciliation of operating loss to net cash used for operating activities Operating loss $ (17,693,389) Adjustments to reconcile operating loss to net cash used for operating activities Depreciation and amortization expense 1,133,839 (Increases) decreases in assets Accounts receivable (444,018) Prepaid expenses and other assets (300,984) Increases (decreases) in liabilities Accounts payable 299,101 Accrued payroll and other compensation (77,437) Deposits 3,156 Unearned revenues - tuition 395,147 Net cash used for operating activities $ (16,684,585) The accompanying notes are an integral part of this statement. 17

20 COMPONENT UNIT STATEMENT OF FINANCIAL POSITION FOR MUSKEGON COMMUNITY COLLEGE FOUNDATION June 30, 2014 ASSETS Cash $ 74,908 Pledges receivable 2,887 Beneficial interest in assets held by others 154,534 Total assets 232,329 NET ASSETS Unrestricted 210,938 Temporarily restricted 21,391 Total net assets $ 232,329 The accompanying notes are an integral part of this statement. 18

21 COMPONENT UNIT STATEMENT OF ACTIVITIES FOR MUSKEGON COMMUNITY COLLEGE FOUNDATION Year ended June 30, 2014 Revenues and support Contributions Cash $ 177,180 In-kind 195,757 Gain from beneficial interest in assets held by others 19,978 Total revenues and support 392,915 Expenses Distributions for the benefit of 198,982 Management and general 85,911 Fundraising 63,405 Total expenses 348,298 Change in net assets 44,617 Net assets at July 1, ,712 Net assets at June 30, 2014 $ 232,329 The accompanying notes are an integral part of this statement 19

22 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of (College) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) as applied to government units and outlined in Manual for Uniform Financial Reporting Michigan Public Community Colleges, The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of the College s accounting policies are described below. Reporting Entity, established in 1926, is located in Muskegon, Michigan. The College provides educational services to residents of Muskegon County. A seven-member Board, which is elected by residents of Muskegon County, governs the College. The accompanying financial statements present the College and its component unites, entities for which the College is considered to be financially accountable. Discretely Presented Component Unit Foundation (Foundation). The Foundation for Muskegon Community College (Foundation) was established in The Foundation s sole purpose is to support the mission of (College) through fund development. As part of this purpose, it is responsible for managing the fundraising efforts of the College. Foundation Board members are appointed by the College Board. The Foundation is reported in separate statements in the financial statements to emphasize that it is legally separate from the College. Significant accounting policies followed by the College are described below to enhance the usefulness of the financial statements to the reader. Measurement Focus and Basis of Accounting The financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Gifts are recorded when received and pledges are recorded when it is determined that the gift is probable of collection at its net present value. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position Cash and Cash Equivalents Cash and cash equivalents consist of all highly liquid investments with an initial maturity of three months or less. Investments Investments are recorded at fair value, based on quoted market prices. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. Property and Equipment Property and equipment are recorded at cost or, if acquired by gift, at the fair market value as of the date of acquisition. Capitalized property and equipment are assets with an initial cost of more than $5,000 and an estimated useful life in excess of one year. 20

23 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position Continued Property and Equipment Continued Land and construction in progress are not depreciated. The other property and equipment of the College are depreciated using the straight-line method over the following estimated useful lives: Capital Asset Classes Years Land improvements 20 Buildings and improvements Equipment 5-20 Unearned Revenues Revenues received prior to year end that are related to the next fiscal period are recorded as unearned revenues. These consist primarily of grants and entitlements received before the eligibility requirements are met and tuition payments received for the subsequent fall semester. Deferred Outflows/Inflows of Resources In addition to assets, the Statement of Net Position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditures) until then. In addition to liabilities, the Statement of Net Position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. Net Position Flow Assumption Sometimes the government will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts of net position to report as restricted and unrestricted in the government-wide financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the College s policy to consider restricted net position to have been depleted before unrestricted net position is applied. Revenues and Expenses Property Taxes The College s property tax is levied and liened on December 1 on the taxable valuation of property (as defined by statutes) located in the College s jurisdiction as of the preceding December 31. Local governmental units within the College s jurisdiction collect and remit taxes until March 1, at which time the uncollected real property taxes are turned over to the County of Muskegon for collection. The County advances the College all these delinquent real property taxes. The delinquent personal property taxes remain the responsibility of the local governmental units within the College s jurisdiction and are recorded as revenue when received. The 2013 state taxable value for real/personal property of the College totaled approximately $4,239,000,000. The ad valorem taxes levied consisted of mills for operating purposes. 21

24 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued Revenues and Expenses Continued Compensated Absences Compensated absences represent the accumulated liability to be paid under the College s current vacation, sick, and banked pay policies. Under the College s policy, employees earn vacation, sick, and banked time based on time of service and/or contract with the College. Employment contracts generally provide for the payment of all accumulated vacation and banked time, as well as, one-half of unused sick leave to a maximum per individual at retirement, or for clerical and custodial staff, at termination. Internal Service Activities Both revenue and expenses related to internal service activities including office equipment, maintenance, and copying have been eliminated. NOTE B DEPOSITS AND INVESTMENTS As of June 30, 2014, the College had the following investments: Weighted Average Standard Fair Maturity & Poor's Investment Type Value (Days) Rating Percent Certificates of deposit $ 710, not rated 3.4 % U.S. Agency bonds 1,608, AA+ 7.7 Money market mutual fund 645, AAA 3.1 Money market mutual fund 9,197, not rated 44.1 Certificate of Deposit Account Registry Service (CDARS) 8,708, not rated 41.7 Total fair value $ 20,870, % Portfolio weighted average maturity 106 Interest Rate Risk The College does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk State law limits investments in commercial paper and corporate bonds to the two highest classifications issued by nationally recognized statistical rating organizations. The College has no investment policy that would further limit its investment choices. Concentration of Credit Risk The College does not have a concentration of credit risk policy. Concentration of credit risk is the risk of loss attributed to the magnitude of the College investment in a single issuer, by diversifying the investment portfolio so that the impact of potential losses from any one type of security or issuer will be minimized. 22

25 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE B DEPOSITS AND INVESTMENTS Continued Deposit and Investment Risks Custodial Credit Risk Deposits In the case of deposits, this is the risk that in the event of a bank failure, the College's deposits may not be returned to it. As of June 30, 2014, $3,907,478 of the College's bank balance of $4,157,691 was exposed to custodial credit risk because it was uninsured and uncollateralized. Custodial Credit Risk Investments The College does not have a custodial credit risk policy for investments. This is the risk that, in the event of the failure of the counterparty, the College will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. Foreign Currency Risk The College is not authorized to invest in investments which have this type of risk. Restricted Cash and Cash Equivalents and Investments Restricted cash and cash equivalents and investments as of June 30, 2014 are comprised of unspent bond proceeds issued for the construction and renovation of various College facilities. NOTE C PROPERTY AND EQUIPMENT Capital asset activity for the year ended June 30, 2014 was as follows: Balance Balance July 1, 2013 Additions Deductions June 30, 2014 Capital assets, not being depreciated: Land $ 231,371 $ - $ - $ 231,371 Construction in progress 87, ,263 35, ,231 Total capital assets, not being depreciated 319, ,263 35, ,602 Capital assets, being depreciated: Land improvements 1,669, ,669,990 Buildings and improvements 30,690,519 21,459-30,711,978 Equipment 5,582, ,657-6,101,823 Total capital assets, being depreciated 37,942, ,116-38,483,791 Less accumulated depreciation: Land improvements 1,145,423 40,257-1,185,680 Buildings and improvements 10,976, ,650-11,653,581 Equipment 3,142, ,932-3,558,989 Total accumulated depreciation 15,264,411 1,133,839-16,398,250 Total capital assets, being depreciated, net 22,678,264 (592,723) - 22,085,541 Capital assets, net $ 22,997,297 $ (376,460) $ 35,694 $ 22,585,143 Depreciation Depreciation expense has been charged as unallocated depreciation. 23

26 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE D RETIREMENT PLANS Employee Retirement System Defined Benefit Plan Plan Description The College contributes to the Michigan Public School Employees Retirement System (MPSERS), a costsharing multiple-employer defined benefit pension plan administered by the nine member board of the MPSERS. The MPSERS provides retirement benefits and post-retirement benefits for health, dental, and vision. The MPSERS was established by Public Act 136 of 1945 and operates under the provisions of Public Act 300 of 1980, as amended. The MPSERS issues a publicly available financial report that includes financial statements and required supplementary information for MPSERS. That report may be obtained by writing or calling: Office of Retirement Systems Michigan Public School Employees Retirement System P.O. Box Lansing, MI Funding Policy Member Investment Plan (MIP) members enrolled in MIP prior to January 1, 1990 contribute a permanently fixed rate of 3.9 percent of gross wages. The MIP contribution rate was 4.0 percent from January 1, 1987, the effective date of the MIP, until January 1, 1990 when it was reduced to 3.9 percent. Members first hired between January 1, 1990 and June 30, 2008 and returning members who did not work between January 1, 1987 and December 31, 1989 contribute at the following graduated permanently fixed contribution rates: 3 percent of the first $5,000; 3.6 percent of $5,001 through $15,000; 4.3 percent of all wages over $15,000. Members first hired July 1, 2008, or later including Pension Plus Plan members, contribute at the following graduated permanently fixed contribution rates: 3 percent of the first $5,000; 3.6 percent of $5,001 through $15,000; 6.4 percent of all wages over $15,000. Basic Plan members make no contributions. For a limited period ending December 31, 1992, an active Basic Plan member could enroll in the MIP by paying the contributions that would have been made had enrollment occurred initially on January 1, 1987 or on the date of hire, plus interest. MIP contributions at the rate of 3.9 percent of gross wages begin at enrollment. Actuarial rate of interest is posted to member accounts on July 1st on all MIP monies on deposit for 12 months. If a member leaves MPSERS service and no pension is payable, the member s accumulated contributions plus interest, if any, are refundable. Under Public Act 300 of 2012, eligible members voluntarily chose between increasing, maintaining, or stopping their contributions to the pension fund as of the transition date. Members who elected to increase their level of contribution contribute 4 percent (Basic Plan) or 7 percent (MIP); by doing so they maintain a 1.5 percent pension factor in their pension formula. Members who elected to maintain their level of contribution will receive a 1.25 percent pension factor in their pension formula for their years of service as of their transaction date. Their contribution rates are described above. Members who elected to stop their contributions became participants in the MPSERS Defined Contribution plan as of their transition date. 24

27 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE D RETIREMENT PLANS Continued Employee Retirement System Defined Benefit Plan Continued Funding Policy Continued The College is required to contribute the full actuarial funding contribution amount to fund pension benefits, plus an additional amount to fund retiree health care benefits. The rates for the year ended June 30, 2014 ranged from percent to percent of payroll. The contribution requirements of plan members and the College are established and may be amended by the MPSERS Board of Trustees. The College contributions to MPSERS for the year ended June 30, 2014, 2013, and 2012 were approximately $3,464,000, $3,185,000, and $2,775,000, respectively and were equal to the required contribution for those years. Employee contributions to the MIP were approximately $788,000 for the year ended June 30, Defined Contribution Plans Effective, July 1, 1999, the Board of Trustees approved an Optional Retirement Plan (ORP) to be administered by TIAA-CREF. The ORP is available for all full-time faculty and full-time salaried administrative staff. Upon eligibility to participate in the ORP, employees have 90 days in which to elect participation in either the ORP or the MPSERS plan. The ORP is a non-voluntary defined-contribution plan in which the College contributes 14.0 percent and the employee contributes 4.0 percent of the participating employee s includible compensation. Participants are immediately 100 percent vested in all ORP contributions. Participating employees elect their own allocation of contributions among the available investment vehicles offered by TIAA-CREF. ORP retirement benefits are based on the accumulation of contributions and the related investment income for each participant. Distributions of retirement benefits are available under the ORP when participants attain age 55. The College s contributions to the ORP were approximately $518,000 and employee contributions were approximately $148,000 for the year ended June 30, Public Act 75 of 2010 established the Pension Plus Plan which provides all individuals hired on or after July 1, 2010, with a combined Defined Benefit and Defined Contribution benefit structure. Any member of MPSERS who became a member of MPSERS on or after July 1, 2010 is a Pension Plus member. The plan is administered by the MPSERS Board of Trustees and the contribution requirements of plan members and the College are established and may be amended by the MPSERS Board of Trustees. Employees under the Pension Plus Plan are automatically enrolled in the defined contribution component of the plan with a default employee contribution rate of 2 percent of the employee s pay. Employees may increase their personal contribution up to the annual IRS limit or can elect out of contributing. The College is required to match 50 percent of the employee contribution up to 1 percent of the employee s pay. For the year ended June 30, 2014, College and employee contributions were approximately $11,000 and $23,000, respectively. The College is required to contribute 4 percent of employee s pay for employees under the MPSERS Defined Contribution plan. Employees under this plan are not required to contribute. For the year ended June 30, 2014, College and employee contributions were approximately $44,000 and $32,000, respectively. 25